Screening customers is a key step in ensuring that your financial institution is not being used as a channel for carrying out financial crime. By building a complete and verifiable profile of the individuals and entities that apply for your products and services, your bank is able to determine how much risk each customer brings with them and if your company can accommodate this risk level without going beyond the acceptable threshold. These profiles can also help investigators take a deeper look into suspicious entities and the modus operandi that financial criminals use in an attempt to bypass the security systems that your company employs.
Know Your Customer (KYC) and Customer Due Diligence (CDD) solutions are not just used for preventing financial crimes and the sanctions that come with these illegal activities; these programs can also help you elevate your establishment’s business relationship with your customers. Keeping a detailed profile of your customers enables your bank to collect useful insights into the nature of their transactions. Access to this wealth of information, then, allows the business to design products and services that suit the exact needs of your clients as well as deliver a more personalized customer experience.
How Does Contextualized Identity Matching Change the Game for Financial Institutions?
The security measures that banks use to protect their company from financial crimes continue to change in order to keep up and stay ahead of financial criminals, who also employ innovation to bypass the security measures designed to detect illegal financial activities. Regulatory bodies, financial institutions, and third-party service providers continue to spearhead improvements in how KYC and CDD processes can be made more effective.
Contextualized identity matching is a product of this arms race, and it makes use of advanced analytics and human inputs to boost an institution’s financial crime and compliance program. To understand the importance of this innovation, one must remember that many financial institutions rely on simple name matching—that is, the prospective customer’s name and other details plus their variations are matched against databases—to verify the identity of their clients. Understandably, this rules-based inquiry into the identity of a client has plenty of limitations, since it can produce a lot of false positives and still miss out on vital information, such as the business partnerships and individual relationships that the prospective client maintains.
A significant improvement on this process, contextualized identity matching consolidates wider and more nuanced information to really understand who the prospective customer is, the nature of their operations, and the level of risk that they bring with them. Building a customer profile that uses advanced analytics and takes into consideration the context of the customer’s business and individual relationships, on top of their basic information, offers the following advantages:
Link Businesses and Entities
Considering the wider network within which the prospective or existing customer exists enables banks to determine whether or not a person or organization has links to suspicious entities. At first glance and by using a basic matching process, it’s easy to conclude that John Doe is a regular person. However, a closer look at their associates and business relationships can reveal that this person has ties to organizations that are being investigated or have been sanctioned by regulatory bodies. Had the financial institution concluded its KYC process after a cursory search, then the company wouldn’t be able to fully understand the risks that come with accommodating this individual as one of their customers.
Uncover Hidden Risks
The strategies that financial criminals use to obscure their activities continue to evolve as well. Simply checking a company’s basic information will likely hide the fact that it is a shell that’s being used by a blacklisted organization. Using contextual identity matching will enable your financial institution to delve deep into the history and relationships that a prospective or existing client is fostering and uncover details that can be a red flag down the road.
Build Customer Profiles
While simple name matching has no doubt worked as a deterrent to financial crime, it’s apparent that this process still has plenty of room for improvement. Switching to a more modern and nuanced KYC and CDD process and profiling method will allow your financial institution to glean more actionable insights about the nature of your clients’ businesses and how you can develop products and services that will be most useful to them.
Improve Risk Processes
Finally, using contextual matching technology to carry out your KYC and CDD system gives your financial institution the opportunity to further improve your existing processes. If you find that the simple matching process has missed customer details and relationships that would otherwise change the involved entities’ risk assessments, then using a contextual identity matching process should help your organization address these inefficiencies.
Integrating contextualized identity matching solutions into your KYC and CDD processes will enable your financial organization to see customers in a much better light. This can be the key to boosting your AML efforts as well as providing a much better experience to your existing and incoming customers.